Swedish Pension Bans Israeli Defense Firm on Ethical Grounds

In an effort to remain a role model for socially responsible investment, the biggest Swedish pension barred Israeli arms maker Elbit Systems from its investment portfolios.

(March 31, 2010) – Four of Sweden’s AP funds in the pay-as-you-go pension scheme have severed ties with an Israeli defense company on ethical grounds.

Following the lead of Norway’s state oil fund, Foersta AP-Fonden, the biggest pension fund in Sweden, said it has shunned Israeli arms maker Elbit from its portfolio because it had built and was operating a surveillance system for a controversial barrier between Israel and the West Bank.

The decision to ban the firm from AP portfolios follows a recommendation by the Ethical Council, which consists of officials from each fund to make sure invested firms behave responsibly and are sticking to international conventions.

“The Ethical Council recommended that Elbit Systems Ltd should be excluded from each portfolio because it deems that the company can be linked to violations of fundamental conventions and norms,” it said in a statement.

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While the Israeli government claims the controversial barrier – a network of fences, barbed wire, ditches and concrete slabs — is necessary to guard its citizens from Palestinian attacks and significantly reduces the number of suicide bombings, opponents argue the barrier is an “apartheid wall” and an excuse to control land essential to a future Palestinian state. Critics of the barrier say it isolates Palestinian farmlands, preventing farmers from reaching their orchards, as well as villages and towns. The international community has condemned Israel’s decision to construct the barrier.

The heightened investing standards of Sweden’s AP funds and others around the world show an attraction to socially responsible investment. In September of 2009, the State Pension Fund in Norway, one of the world’s biggest investors, decided to divest from Elbit Systems. Sovereign wealth funds in Saudi Arabia and Kuwait have also become increasingly attracted to investments that benefit future generations.

For example, Abu Dhabi’s Future Energy Company has supported environmental investments through its Masdar Clean Tech Fund, and Norway’s Government Pension Fund has championed its effort to remain a role model for socially responsible investment, blocking 17 tobacco companies from its fund. Additionally, China’s fund has committed to larger clean energy projects.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Buyout heads met with investors to discuss the role of private equity in investment portfolios and the challenges and opportunities confronting the industry.

(March 31, 2010) – Pension fund giant California Public Employees’ Retirement System (CalPERS) and other investors met with executives from among the world’s largest buyout firms to discuss a range of “principles” introduced by the Institutional Limited Partners Association (ILPA).

The not-for-profit association’s mission is to restore and strengthen the delicate relationship between the endowment and pension funds that invest in private equity funds (the “limited partners”) and the private equity firms that invest and manage the capital (“general partners”). The ILPA, which represents investors, has introduced guidelines surrounding fund structures, which contains best practices relating to the alignment of interest between general partners and limited partners, fund governance, transparency and reporting.

The meeting’s agenda shows that private equity firms are taking ILPA’s guidelines seriously and that investors – pension funds, sovereign-wealth funds and endowments – may want more control over the terms private-equity funds set. The get-together signals a shift in the relationship between private equity firms and clients, who have traditionally accepted the terms managers proposed. After steep declines in buyout shops since ILPA’s guidelines emerged amid the financial crisis, The Wall Street Journal reported, firms found it harder to raise cash and some of the largest fund managers have made concessions to mollify investors.

The New York-based meeting, moderated by CalPERS Chief Investment Officer Joseph Dear, included discussions on regulatory issues, the fact that funds and investors’ interests should be aligned, and that changes in tax law should not be passed on to investors in a fund, according to the ILPA Web site. “Contrary to what has been reported in the press, the private meeting was not about fees but more about broader industry issues that have impacted private equity,” said ILPA Executive Director Kathy Jeramaz-Larson to ai5000. “It was a productive conversation.”

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Attendees reportedly included investors and executives of Blackstone, Carlyle Group, TPG, Avenue Capital Group and Kohlberg Kravis Roberts & Co.

“We are very pleased with the level of support we have received thus far,” said Jeramaz-Larson in a news release. “It reflects the firm belief from institutional investors that adoption of the principles will help lead to a stronger, more sustainable industry and, ultimately, improved investment returns.”

ILPA has more than 230 institutional member organizations that collectively manage approximately $1 trillion of private equity assets.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742